Broker Misconduct: Unsuitable Investments

Potential investors consult brokers because these people are the ones who know better. They study investments to check which ones can potentially grow and determine their involved risks. Of course, not because a particular investment has good potential for growth and has acceptable risks, it automatically means that it is the right investment for the potential investor.

There are a lot of other factors to consider to determine where an investor should invest his money. These may include the following:

Financial situation

Investment experience

Room for risks

Liquidity

Condition of other investments, if there are any

Investment goals

Tax status

Age

If the broker has recommended a particular investment opportunity without considering that investment’s growth potential, its risk factors, and the potential investor’s financial standing, he may be committing a broker misconduct called unsuitable investments.

Suitability occurs when a potential investor’s status, such as the financial standing factors bulleted above, coincides with the investments he has made. Failing to have suitability is almost always the broker’s fault, because he is the one responsible in studying investments and determining the status of the potential investor.

Unsuitability can arise in two ways. First, it can arise because of the lack of knowledge regarding the particular investment or the potential investor’s status. Second, it can arise because of the financial advisor or broker’s incompetence, usually in the form of lack of understanding of the investment’s potentials and risks and lack of adequate financial strategies.

To guarantee suitability, it is recommended that the broker have the following:

Adequate knowledge of the nature, potential, and risk of the investment